Spies, World Wars, Cypherpunks, and the Arrival of Cryptocurrency

Amid the frenzy of ICOs and the excitement surrounding increasing mainstream adoption of cryptocurrency and blockchain technology, it’s often forgotten where the technology came from and the dreams of the future that inspired its creation. Some of those dreams — such as the idea of Crypto Utopia settlements and cryptocurrency’s liberating use in less-developed nations — are actually coming to fruition, albeit in a fledgling manner. So today, we are going to take a look back, at the pre-history of cryptocurrency.

Origins: Military Use

Cryptocurrency grows out of the practice of cryptography, which was developed in order to do something mankind has long aspired towards — to communicate privately, even secretly, particularly in times of war. The roots of the word itself are telling: a combination of the ancient Greek words “kryptos” (hidden or secret), “graphein” (to write). It was a goal that remained elusive for centuries, so much so that the gothic American author Edgar Allan Poe described it, writing in the 1840s, as an impossibility. “Human ingenuity cannot concoct a cypher which human ingenuity cannot resolve,” he wrote.

Writing in secret codes, or encryption, has existed nearly as long as warfare itself, but such codes proved stubbornly breakable. Cryptology took a big step forward when it first became mechanized late in WWI when two Dutch naval officers created a “rotor machine” — an electro-mechanical encryption machine that combined the mechanical parts of a standard typewriter with the electrical parts of an electric typewriter, connecting the two through a scrambler. The invention wasn’t put to use until the Germans adapted and further developed the idea, which they named the “Enigma Machine.” The early history of WWII is rich with sleuthing by Polish, French, and British intelligence services to break the Enigma Machine’s codes in order to try to slow the spread of Nazi Germany’s invasion. And break it they did: historians regard Allied cryptologists ability to break the Enigma codes as a key to turning the tide of the war. A big step forward in the defeat of the Nazis, however, was also another example of how impossible truly secure communication remained.

Pre-history: the Revolution Begins

Cryptography remained mainly a practice of soldiers and spies until the 1970s, when the U.S. National Security Agency (NSA) allowed the public publication of the Data Encryption Standard (DES). The DES was a government-wide standard, a block cipher used for encrypting unclassified, sensitive information that IBM had developed, responding to a request for bids by the National Bureau of Standards. At the same time, academics began expanding the idea of how cryptography could be used; a groundbreaking work by Whitfield Diffie and Martin Hellman established for the first time how to create a shared secret-key over an authenticated, non-confidential communications channel (that is, a universally composable channel, such as the then-fledgling World Wide Web ). It was known as Merkle’s Puzzles (based on the theories of a pioneering computer scientist) was invented in 1974 and published in 1978.

Though the world of cryptography was a small and thus the implications of this invention not broadly recognized, this was a revolutionary breakthrough: it meant anyone with a computer could encrypt a message that could resist even as powerful an entity as a government from deciphering a communication between parties. That fact that this occurred right as microcomputers went on the consumer market — which was also seen as tools of empowerment and potential autonomy from the state — gave birth to the crypto dream. In 1985, cryptographer David Chaum wrote a paper that made the idea explicit: it was called “Security without Identification: Transaction Systems to Make Big Brother Obsolete.” Among his many topics was the notion anonymous digital cash, which would free currency from government control. Thus was born the Cypherpunk movement.

The Cypherpunks

The cypherpunk activist movement began in the late 1980s and took Chaum’s ideas as a foundation. But they took the vision even further: the combined technologies of the computer, the internet, and crypto technologies, they believed, would cause sweeping social change, laying waste to governments and other established institutions. At its core was a vision of humankind evolving beyond such rudimentary forms of organization into a more liberated, rational, and egalitarian form of social organization.

In late 1992, three friends (Eric Hughes a mathematician from University of California, Berkeley; Tim May, a retired businessman who worked for Intel and; John Gilmore a computer scientist who was Sunmicrosystems’ fifth employee) who had all retired young, invited about 20 friends to join a mailing list intended to fully discuss and collaborate on the emergence of a crypto-world.

Hughes wrote a manifesto in 1993 that began: “Privacy is necessary for an open society in the electronic age. Privacy is not secrecy. A private matter is something one doesn’t want the whole world to know, but a secret matter is something one doesn’t want anybody to know. Privacy is the power to selectively reveal oneself to the world.”

Hughes, like Chaum before him, touched on the notion of cryptocurrency, though it wasn’t thus named quite yet other than as an “anonymous transaction system” such as cash.

It would take another 15 years, but in October 2008 paper arrived on the cypherpunk mailing list that would make things decidedly more real. It was by an unknown person who identified himself as Satoshi Nakamoto and it was called, “Bitcoin: A Peer-to-Peer Electronic Cash System.”

The revolution was about to go beyond theory, and into practice in the world. Cryptocurrency had finally arrived.